July 30, 2023

Leasing a Truck: An Owner Operator’s Guide

You need the right tools for any job, and the biggest tool an owner operator needs up front is a truck – or access to one, at the very least. Leasing a truck, however, can be confusing. If you’re on the road and want to listen to this topic in more depth, check out the Haulin Assets podcast Episode 80.

In the meantime, here are some common questions that owner operators need to know before making the decision to lease:

What types of leases are out there?

The term itself means different things in the trucking industry and there are three types of lease scenarios to know.

Scenario #1

The first lease scenario is when an owner operator owns their own truck and leases onto a motor carrier, basically running under the authority of the carrier; they’re hauling loads for this carrier but they’re using their own truck. It’s basically a subcontractor scenario.

Scenario #2

The second lease scenario for an owner operator is when they use a truck that the carrier owns but leases back to the owner operator. That can be helpful if you don’t have the money to buy your own truck. Sometimes, you get the chance to own that truck over time through the lease agreement. Other times it might be a standard lease where the carrier always owns the truck and you’re just leasing it from them. Just keep in mind that this scenario is the trickiest because some carriers can take advantage of the drivers as they use the trucks.

Scenario #3

The third lease scenario for an owner operator is similar to leasing a car and this is the most common category. You basically have it for a specified timeline until you decide you want to make it your own.

To help, the federal government offers tools and resources for how to safely get involved in lease agreements. The Federal Motor Carrier Safety Administration (FMCSA) even recently created a task force that will evaluate lease agreements and help owner operators fight against predatory practices in these agreements.

Who owns the truck?

The finance company that owns the title owns the truck. If it’s your truck, then you’ll know the financial institution you’re working with. If you’re using a carrier’s truck, you probably won’t know what financial institution has the title.

What happens to the truck after the lease is done?

If your lease ends and you don’t have a plan to renew it, you can simply drop the keys off and make sure your exit paperwork is complete. You will usually also have the option to purchase the truck at or around the market rate.

Are you limited to the number of miles you can put on the truck?

Yes, it’s possible. If you go over the limit and run out of miles, you might be penalized. It depends on the lease, though. If you have something called a ‘track lease’, you’re typically not limited to the number of miles you put on the truck and the motor carrier assumes most of the financial risk. If it’s a ‘full market value lease’, though, you’ll probably have a mileage limit and the person who is leasing the truck will pay for the extra financial risk (repairs, etc.)

Go into a lease scenario already knowing how many miles you think you’ll be working each month and whether you can make that happen under a mileage restriction clause. (For reference, the high end of average trucker mile limit is probably 120,000-150,000 miles a year, which is about 10,000-12,500 a month).

Does leasing vs. buying change anything for your insurance?

The impact is low on your insurance premium, regardless of if you lease or buy. For example, if your truck gets totaled, you’d probably get the actual cash value for the truck through your insurance. So, there’s not a strong benefit one way or the other on this one.

Is there a per-mile maintenance cost? And who is responsible for maintenance and repairs?

There can be a maintenance cost for mileage. That situation typically falls under something called a “full maintenance lease” and you see this more often with the equipment manufacturers. Some companies offer a full maintenance lease where your maintenance is included in the lease cost. In that scenario, you’d be responsible for getting the maintenance done.

Does a lease typically have a lower payment?

Yes, leases and the lease payment are typically lower because you’re financing a lower amount for the truck. That’s why leasing can benefit your cash flow and operating expenses.

Is the interest rate on a lease different?

Usually, yes. Loan rates will be slightly higher for leases, typically by about a quarter of a percent.

What are the tax considerations when leasing vs. buying?

On a lease, you see a line item on the profit loss statement that shows the entire amount of the lease because you’re not the lease owner; you’re not the one building up equity. That’s one of the tax advantages: you see the whole amount that you pay each month as a business expense that essentially gets written off.

When you’re buying a rig with a traditional loan, write off the interest portion of the payment and then you depreciate the truck and write off the depreciation expense. That means your profit and loss statement won’t directly show your truck payment because the principal portion of the payment is not tied to the income statement.

There are pros and cons of leasing and buying when it comes to taxes. You should definitely talk with your tax professional before you decide which is best for you.

Who can qualify for a lease? Is it easier to qualify for a lease than traditional financing?

It’s not too difficult to qualify for a lease and it’s based on your credit. If you qualify for a loan then you’ll typically qualify for a lease. However, some companies will lease equipment to customers considered high-risk who might not qualify for traditional loans. And, it can be helpful to have installment credit on your credit report, but each situation differs so it’s not necessary.

Is there a down payment?

Yes, that’s likely. Just like a car loan that might require a down payment, you may also need to provide a down payment for this scenario and it’s likely it would be the same amount as if you were buying the truck yourself.

Have more questions about buying versus leasing? You can contact one of our Motor Carrier HQ coaches to learn what’s best for your business scenario. You can also get your trucking authority for $499 through our team, who will lead you through the entire process. We’ve done the research so you can go out and build your business.

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